Merchant Blog

Blog Article: Business Loan Borrowing – Too Much or Too Little?

When applying for a business loan or other financial product, determining the affordability of the funding for your small business will be one of the most important considerations you can make in the planning stages. One of the most common questions we receive is “how much can I borrow?” or alternately “How much should I borrow?”

With a Merchant Advance, you can borrow the funds you need to finance important business goals such as expansion, hiring, equipment purchases, and marketing. However, the important question is: what is the best way to audit your needs?


The Business 2 Community blog summarizes this issue well:

“… there is nothing wrong with building contingencies based on a worst-case scenario into your plans so you can make sure to still deploy your borrowings effectively. However, good contingency planning is specific and focused. What doesn’t make sense is to borrow way more than you need just to make yourself feel more secure, or worse, to mask fundamental problems with your business.”

The other side of this coin reveals itself when owners fail to consider secondary costs of expansion and development that may stretch the value of a business loan. Expansions, for example, may necessitate new staffing arrangements, greater property tax obligations, increased utility costs and so forth.

Fortunately for the business loan marketplace, alternative lending provides a number of solutions to address the problem of being unsure of how much, or little, a business can afford to borrow. A merchant advance, for example, allows businesses to borrow based on the expectation of repayment by percentage rather than by a lump monthly sum: this means that if you have a slow month or a particularly amazing one, your repayment scales to match your revenue and doesn’t bite into your business’ cash flow. And if you find that you might require more funding, establishment of refinancing can become part of your merchant advance strategy.

In the end, your business’ financial needs when it comes to obtaining funding from external sources will be dictated by your ability to plan for both the short and long term. Though it may be tempting to apply right away, consider revisiting your strategic plans and working through the real operational costs that you work with on a daily basis.



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